Internal and external determinants of banks’ profitability

Abstract

Purpose– The purpose of this paper is to analyze the profitability of 27 universal banks in Portugal over the period from 2002 to 2011.Design/methodology/approach– The paper conducts ordinary least squares estimations with fixed effects using three measures of profitability: the return on average assets, the return on average equity and the net interest margin. Several independent variables were included concerning both bank-specific and macroeconomic and industry-specific characteristics which have not been considered in previous studies. In addition, the sub-sample between 2008 and 2011 was considered for comparative analysis.Findings– The authors concluded that the independent variables selected, with few exceptions, behaved accordingly to what was expected.Originality/value– To the best of the author’s knowledge, this is the first attempt to examine determinants of banks’ profitability in Portugal, both internal and external, using time series data, which have not been considered in previous studies.